Building Boom and Builders going Bust

Here we go again. The head hunters have emerged, companies cannot retain and hire good staff, material prices are through the roof and subbies are ordering jet skis (well maybe a few).

The Australian construction sector is going gang busters and the inevitable will happen – good, established builders and subcontractors will and are going broke. Some blame ridiculous low profit margins, some blame “greedy” subcontractors, some blame Covid. The truth is we need to look at ourselves. We determine the submitted tender, we put pressure on shaky subcontractors, we convince ourselves we can deliver on time and on budget.

Bottom line is many builders simply cannot manage risk, we accept draconian contract terms, procure inefficiently and blame everyone else for out predetermined fate.

Just say no and go fishing

Zero Overheads

v-30-PreviewSimple premise – reduce overheads, become more competitive, then win more work. So what overheads does a construction company essentially need. Perhaps if the projects were set up with the right resources we would not be as reliant upon a head office. The project becomes, in effect a stand alone business and if it needs anything from head office it has to pay for it. Simple. But in reality , if the project runs this way it will incur costs never envisaged in the cost plan and instead of wearing head office overheads, it just bleeds dollars and drags the business down anyway. It is all down to how the budget is managed, reported and controlled.

So we need to be competitive in the tender process, run the project pretty lean and not rely on additional resources from head office. The answer is smart people, good communication and the best IT we can buy.

Let’s start with IT. We  love to blame it, cannot function without it, do not embrace it and do not use it to its full potential. The IT department is an overhead that needs to charge the project for providing services and hardware.  First thing we can do is to stop buying hardware. Bring your own phone, ipad, tablet, monitor and simply connect to the company’s access points. Companies don’t provide cars any more so why provide computer hardware. All IT provide is the core software and managing internal communication. Everyone has a mobile phone so why is it most staff have two, one for work and one for personal.

Site office space is always a problem as we never seem to have enough. We need to understand space should be determined by function not status. Give everyone access to an open plan area and meeting rooms for meetings, not for egos. Site offices are expensive. We do not need a dedicated office for a project director who visits once a month, whilst others are working on top of each other.

But this is just simple good housekeeping. We need to look at all the functions that the project could manage themselves and ensure those they cannot are paid for. We all think very seriously before calling in external legal advise, yet pick up the phone at the drop of a hat if we have in-house counsel. Internal lawyers (if the company has them) are our best friends and having access to them is a true luxury. But we need to be aware not only do they have a cost, the resource is limited and whilst we are tying them up they are not available to our colleagues on other projects.

It is interesting to consider say fifty years ago we employed all the major trades for us to construct buildings and did not have internal support such as legal, marketing, green advisers, real estate novelists etc. Now we have various none core support divisions and we subcontract the construction.

Of course our support teams are vital and we need to make full use of their expertise, we simply need to remember we have to pay for them.

picture courtesy of

Hand in your badge and gun


A project manager mate of mine arrived at his site office last Friday. He was greeted with the normal scene: union delegates arguing about subcontractors having the audacity to employ people who are not 100% unionised; subcontractors with not enough resources; and emails from the client’s representative refusing perfectly valid variations. He had made a decision which would upset head office and may make him a pariah as far as future promotion was concerned. He was taking Saturday off to have a full weekend with his wife.

Although his annual salary far exceeds the “average Australian” if it is divided by the number of hours he works, his hourly rate is less than a site labourer. But he has a passion for construction. That passion cost him his first marriage, drove him to the occasional drink, and evolved him into a dad his children did not know or particularly like. But his passion was a major factor in driving him to deliver project after project for his employer.

As Friday wore on, and the normal dramas of the day were crossed off the to do list, he decided it was time for his daily “walk about. However, as he reached for his hard hat, he received a text from his operations manager. Not a personal visit or a phone call, just a text which read verbatim: “Company ceased trading, get everyone off site, lock the gates, take only personal belongings report to head office immediately”. Yes the company had gone broke.

This has happened to many of us in the construction industry, we end up with broken relationships, heart attacks through stress, and the stigma that goes with having been the PM on “that job, for “that mob” who screwed their subcontractors. Sometimes the bloke delivering the project gets screwed as well.

Now he has to wait and see if he will get his entitlements, find a job, and still keep his passion for his next employer. His comment to me “Well at least I have finished paying child support, I think it is time for a spot of fishing”

So if you are reading this mate, go easy on the Johnny Walker, enjoy the fishing and it may be a good idea to take your wife with you or you might get made redundant there as well, then you will be looking for wife number 3.

by Gerry Keating

Busy Going Broke

redundancy250It is symptomatic of our industry that often companies assume being busy equates to making money. All too often it just means acceleration towards bankruptcy. Increased activity does not necessarily mean making greater profit. Nobody hold a gun to our heads to force us into signing a contract, yet we still sign up for projects with unrealistic programmes, inadequate budgets, and risks which we believe can be overcome. It is plain and simple delusion.

The warning signs begin with the tender process. In order to save development costs, clients do not put the required resources into preparing tender documentation. They work under the false illusion that “the market” will determine the best price and the contract will save them from a “switched on” builder. The reality is that “the market” consists of builders who know their game and as long as they understand activity versus profit, the tenders will reflect the completeness of the tender documentation.

Some years ago I delivered a large coal infrastructure project in Kalimantan for an Indonesian client. To keep costs down the client believed he could set the tenders up with minimal documentation, unproven consultants and a catch-all contract. What it would have cost for proper tender documentation was less than 5% of what it cost in contractual claims, delayed production, legal fees and lost profit.

The next twelve months here in Australia will be difficult fr the construction industry, especially for employees who have never experienced really bad times. Yes I am old enough to have gone through Arab oil embargos and three day weeks. It won’t be as bad as that but large contractors will shed staff, salaries will continue their decline and there will be lack of confidence generally. The difference will be contractors will not win work at any price and make cuts in overheads earlier. will be in most people’s favourite bar, LinkedIn will continue its exponential growth, as we all brace ourselves for a bumpy ride.

Oh No, they have brought in a Quantity Surveyor

Budget Meeting

Builders hire external quantity surveyors only as a last resort. Usually after months of trying to convince themselves that the project bottom line will improve, they realize that they are in for a contractual fight with the client and any straw needs to be grasped.

Month after month of cost reports with ever diminishing margin, force them to consider the battle ahead. That means finding every conceivable error, ambiguity, inference in the contract documents or any slip by the client’s representative. Project managers think they are experts in construction law, directors look for blame, and the site based project team convince themselves they have a cas against the client. Delusion has set in.

Wonderful expressions are uttered, “global claims”, “unfair enrichment”, deceptive and misleading conduct” All are bandied about with as much abandon in the site office as in the boardroom. Sight is completely lost of the simplicity of contractual claims:

  • What did the client do or not do?
  • Did this cause us costs?
  • Is it recoverable under the contract?
  • What are those costs?

The client’s quantity surveyor has  either dismissed or taken a blow torch to variation claims and because builders are not in the quantity surveying club, they are forced to seek the services of an external professional – the QS.

by Gerry Keating

So we go through the very expensive exercise of our people talking to their people and if we are lucky end up with a compromise on the steps of the court.

The alternative is to start the process from the day the first variation is carved up by the client’s QS, not wait until the dire cost report forces the issue. Get in early, don’t get time barred, and do not put up with any nonsense from a QS who probably created the errors or ambiguities in the first place.

The Dog and the Tail

There is an old expression: something about the tail wagging the dog, the gist being the person who should be in control is in fact controlled by those he should be controlling. Apologies for the tautology but you get my drift.

The traditional project had a PM at the top of the pyramid and the next level would be site manager, project planner and contract administrator. the next level foremen, supervisers etc. Everyone new their role. The PM reported to the Building/ Construction/ Operations manager and they in turn reported to the Rgional/General Manager. Life was simple, comunication flowed up and down the organisation and everyone new their career path, what they were responsible for, and who they were responsible to.

Times have changed. In a world where the most junior cadet can email the client’s managing director and the first thing the PM knows about it is when the sh*t hits the fan, control of communication has become like knitting fog. OK we have Acconex (but don’t get me started) and other project controls, now that term did not exist a few years ago in Australia. Have you ever heard such American nonesonse “Project Controls Manager”. There is only one person in control – the PM, not some glorified QS.

Anyway I digress.

Back to the tail and the dog. Because the construction industry, in particular within the resources sector, is booming, we have had to hire people who if times were tough we simply would not entertain them. People who were supervising the construction of timber framed housing are now erecting structural steel, not on a domestic sub-division but inside a complex, dangerous production facility. Putting it simply – different rules, procedures, practices and trades. So these inexperienced “newbies” start to rely on advice not from the people they report to as that would show their shortcomings, but they ask the workforce. Before long the guys on the tools are asking for scale rules, contacting suppliers, organising deliveries and bacically running the job themselves. The canny PM spots this early and sorts it out, but if there is a long workforce it can go un-noticed until either someone gets hurt or the jungle grapevine tips him off.

Do you blame the person that hired these people? Normally you would say yes, but when you cannot get anyone who wants to be a supervisor and earn $50K pa less than those he supervisors, you eventually hire someone, anyone.

Networking Nonesense

The You Suck Proportionality
Image by LexnGer via Flickr

I have a theory, well I have many but this one states:

“the amount of active contacts in your network is inversely proportional to the amount of years experience you have in the industry”

Which means those who are relatively new to the construction industry have many contacts that they are in touch with in order to promote themselves. Whereas those who have been in the industry for many years have a lot of contacts they want Not to be networked with and do not see the need for mass networking.

I recently decided to use gmail as my primary email, contacts, diary etc synced to my iphone, ipad et al. This meant merging various outlook, hotmail, Opera, Excel dbases, to come up with a full list which was up to date and with no duplicates. The merged contact database was 7,246 contacts. After culling duplicates, the dead, the retired, the bankrupt and those residing in the home for project managers who have overdosed on cost reports and spreadsheet senility, I ended up with 3,156. Take out all my personal friends and that slashed the total to 3,152 (no comments on misanthropic, narcissistic project managers please). I then took out all architects, engineers, consultants and other near do wells, sales reps and real estate novelists, I got down to 658. Still too many.

So I have embarked on an experiment. I have deleted all contacts in the iPhone and will only add them when they call me. This meant adjusting the sync settings in iTunes but that is a whole new post in itself.

On completing this exercise the iPhone rang, my first unadulterated contact. It was a gentleman from Mumbai asking if I was interested in real estate in Dubai.

The contact list is still empty